As the drama unfolds over the rescue package announced on Friday 30 January by the Government of Trinidad and Tobago for the
financially distressed CLICO and certain other companies in the CL Financial Group, many will be seeking to blame the sudden
decline in the fortunes of the conglomerate on the global financial crisis.

In this regard we would do well need to note the measured statement by the Governor of the Central Bank of Trinidad and Tobago,
Mr. Ewart Williams, in particular the following passage:

"There is no doubt that the increase in CIB withdrawals and the nervousness seen at Clico have something to do with the depositors’
concerns about the impact of the sharp decline in methanol and real estate prices on CL Financial’s overall financial situation.
In the Bank’s view however, the current financial difficulties being faced by CIB and Clico have more to do with four things:

• Excessive related-party transactions which carry significant contagion risks. I should note that the high level of concentration
is not specifically prohibited by the present legislation.

• An aggressive high interest rate resource mobilization strategy to finance an equally high risk investments, much of which
are in illiquid assets (including real estate both in Trinidad and Tobago and abroad).

• A very high leveraging of the Group’s assets, which constrains the potential amount of cash that could be raised from the
asset sales.

In our regular monitoring of CIB and of Clico since 2004 (when insurance supervision was transferred from the Ministry of
Finance), the Central bank has consistently focused on these deficiencies but have been stymied by the inevitable challenge
of change and by inadequacies in the legislative framework which do not give the Bank the authority to demand these changes.

The Central bank is very conscious of the contagion risks that financial difficulties in an institution as vast as the CL
Financial Group could have on the entire financial system of Trinidad and Tobago and indeed in the entire Caribbean region."

The full text of the Governor’s statement can be found in the link at the end of this comment.

I have quoted from it at length because it is important that we understand the reasons for this debacle and learn the right
lessons for the future.

Governor Williams is telling us that the Central Bank has been concerned about CLICO’s operations since 2004. He is saying
that the Central Bank could do nothing about their concerns because of the absence of the necessary legislative authority.

The obvious question is why the necessary the necessary legislation was not put in place (we are now being told that this
will be laid in the national Parliament on Monday February 2).

One lesson of the CLICO debacle, therefore, is that governments need to equip themselves in a timely manner with the necessary
legal tools and supervisory instruments to effect adequate regulation of financial entities in the public interest, and not
seek to close the gate after the horse has bolted.

In the CLICO case, it is clear that the authorities cannot claim that ‘we did not know’. Hence no entity, no matter how large
its weight in the economy, can be safely regarded as being above proper oversight and regulation. Indeed the larger it is,
the more important adequate regulation becomes and the greater the consequences of its absence.

The threatened collapse of CLICO/CIB has sent shock waves throughout the region, undermined public confidence in all financial
institutions in all Caricom countries, and will cost the Trinidad and Tobago taxpayer an as yet undetermined amount of money.

A second lesson is that we need to adopt the finalise and adopt the Caricom Financial Services Agreement as a matter of urgency.
By this means, financial entities will not be able escape regulations in one regional jurisdiction by exploiting legal loopholes
in another ('regulatory arbitrage').

The FSA, along with the associated Caricom Investment Agreement, has existed in draft form for several years.

A seamless regulatory environment for investment and financial services across the regional space will strengthen the effectiveness
of regulations aimed at averting another CLICO debacle, and heighten the attractiveness of the region as an investment destination
by reducing the transactions costs of doing business in several regional countries.

A third lesson is the need to revisit the commitments on financial services and their regulation made by Caricom, as part
of Cariforum, under the Economic Partnership Agreement with the EU.

Several authors have recently argued that the EPA provisions in these areas limit the policy instruments available to Caricom
governments to mitigate and manage the effects of the crisis on their economies (see list at the end of this comment).

Also the regulatory provisions are strongly influenced by EU standards, and reputable sources have pointed out that EU financial
legislation had a shaping influence from the US investment banking giants, three of which have since collapsed.

Regulations crafted to serve the interests of discredited financial institutions cannot be relied on to serve the regional
interest.

Furthermore, several European governments have acquired a stake in their countries’ financial institutions; and these quasi-state
entities will have access to the financial services industries of Caricom countries under EPA commitments. The implications
of this need also to be studied.

Norman Girvan is the Professorial Research Fellow at the UWI Graduate Institute of International Relations at the University
of the West Indies in St. Augustine, Trinidad and Tobago. He has been Secretary General of the Association of Caribbean States.